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What is the role of accounting and financial decision making in Business? Why is essential to consider accounting data in relation to other factors in other decisions in all situations.

The word accounting can firstly be defined as the collection, recording, compiling and forecasting of financial information.

There are two different strands in accounting, and these are financial accounting and management accounting. Financial accounting has information about reports of the past, it can be used by external users, it needs to be reliable, accurate and consistent, it is ruled by accounting conventions and legal requirements, and it covers the company as a whole.

Management accounting focuses on the present and the future of the company, it is purely for internal users, it is usually easy to use, relevant and up-to-date, and it covers the departments and divisions rather than the company as a whole.

The first part of accounting is the collection of the data. This data is collected from the business transactions which are the: Buying and selling of goods and services; Sales invoices, purchase invoices; Statements, credit notes; Remittance advice notes, cheque receipts.

The second part is the recording of the data. This process is done with double entry, using the accounting equation and the conventions or principles. The information is recorded in Daybooks, books of original data, sales purchase ledgers, and nominal ledgers. Read more…

A distinctive feature of the last decade has been the drastic change wrought by globalisation and financial innovation on the world’s financial systems. With the worldwide shift toward financial systems based on global markets, attention is focusing on the need to redesign existing financial institutions and markets, corporate governance schemes and regulatory frameworks in order to achieve long-term stability of said financial systems. Interest in restructuring the region’s financial systems has intensified as a result of last century’s financial stress and the consequent need for architecture for the changing economy.
Fries and Lane (as cited in Berndt 2002) asserted that building a sound financial system is a prerequisite for economic development and ensuring long-term financial stability. The development of bond and equity markets has also been found as one important way of reducing financial fragility.

Gale (2001), in the similar line of argument as Fries and Lane, claimed that financial systems are crucial for the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms. They allow intertemporal smoothing of consumption by households and expenditures by firms. They allow both firms and households to share risks. Read more…